When You Assume...

Over the years, so-called personal finance experts have provided valuable information—but also a smattering of misinformation—but I can think of none quite as egregious as some remarks recently made by Dave Ramsey.

By now I’m sure you’ve heard—or heard about—his “counsel” with regard to acceptable retirement withdrawal rates—and his disparagement of the “supernerds” who would dare to disagree with him. As for that counsel, at a high level, Ramsey maintains that an 8% withdrawal rate is not only doable, but sustainable. All you have to do is be invested 100% in equities—oh, and assume a 12% return.[i]

Of course, such machinations have always been predicated on assumptions—about inflation, about market returns and, most notably, about the length of life itself. That said, this didn’t become a specific focus—a so-called “rule of thumb”—until 1994, when financial planner William Bengen[ii] claimed[iii] that over every rolling 30-year time horizon since 1926, retirees holding a portfolio that consisted 50% of stocks and 50% of fixed-income securities could have safely withdrawn an annual amount equal to 4% of their original assets, adjusted for inflation without… running out of money.

That said, even though it was predicated on a number of assumptions that might not be true in the real world—a 30-year withdrawal period, a 50/50 portfolio mix of stocks and bonds, assumptions about inflation—oh, and a schedule of withdrawals unaltered by life’s changing circumstances—well, with the return of inflation as a reality (rather than a theoretical construct), it now seems that there’s an annual scramble to reassess that “safe” withdrawal rate. Indeed, a couple of years back a Morningstar paper challenged its conclusions in view of “current conditions”—opining that “using forward-looking estimates for investment performance and inflation,” the Morningstar authors said that the standard rule of thumb should be lowered to 3.3% from 4%.

That said, this is something of a moving target, and a few weeks ago Morningstar moved the target back to 4% (after having opined that a starting safe withdrawal rate for a 30-year horizon with a 90% probability of success was 3.3% in 2021 and 3.8% in 2022). Enter Dave Ramsey and HIS assumptions that allegedly support a much higher rate (though I don’t recall him offering a probability figure of savings lasting as long as your life[iv]).

Now, in fairness, even the Morningstar folks allow for some variance in “safe” withdrawal rates—explaining that the increase from 2022 in this “highest safest starting withdrawal percentage” for a 30-year horizon with a 90% probability of success “owes largely to higher fixed-income yields, along with a lower long-term inflation estimate.” Moreover, they assert that it’s predicated on assumed portfolios that hold “between 20% and 40% in equities and the remainder in bonds and cash”—which is, in itself, a fairly sizeable range.

There’s been plenty of evidence—both empirical and anecdotal—that retirement “spends” aren’t nice, even streams. Life’s circumstances change, of course—and our health care, and health care costs, are notoriously variable. There’s a sense that the pace of spending earlier in retirement is more like that anticipated in most retirement education brochures—travelling and such—but that pace slows down as we do.

At its core, once you stipulate certain assumptions about the length of retirement, portfolio mix/returns, and inflation, a guideline like the 4% “rule” is really just a mathematical exercise. A 4% “rule” may be simplistic, but it’s also simple—and when it comes to getting your arms around complex financial concepts and distant future events, there’s something to be said for that.

But—and as Dave Ramsey’s response should remind us—when you “assume” … (or when others assume on your behalf) make sure you understand the assumptions required to make it “work”—and perhaps more importantly, the likelihood/probability that those assumptions will be a reality. 

- Nevin E. Adams, JD

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[i] One of the more humorous—and insightful—rebuttals on all this came from SRP’s Jeanne Sutton: https://www.linkedin.com/feed/update/urn:li:activity:7130951358609838080/

[ii] https://www.forbes.com/advisor/retirement/four-percent-rule-retirement/

[iii] See www.portfolioconstruction.com.au/obj/articles_perspectives/retailinvestor.org_pdf_Bengen1.pdf

[iv] That said, Morningstar’s John Rekenthaler has—and you can read that analysis here

 

Are There Boogeymen in the New Fiduciary Proposal?

Like many of you, I have spent a fair amount of time over the past couple of weeks reading and analyzing the impact and import of the new fiduciary rule proposal—not to mention the legal pundits who seek to tell us what they think it means, or might mean, regardless of what the proposal actually says.

At a high level, it seems to me (and several well-regarded ERISA attorneys) that retirement plan advisors who are today operating under the auspices of PTE 2020-02 should have little to worry about under the new proposal. Indeed, the biggest controversies around the proposed rule seem to be extending the reach of PTE 2020-02 to organizations and entities that hadn’t previously had to adhere to those requirements. 

But if you’re already doing so—and surely if you’re a retirement plan advisor you are—there’s little of concern in the proposal. In fact, you might well draw comfort from the possibility that entities and advisors that have competed with you for rollover business would have to adhere to the same rules and disclosures that are now part of your business, painful though it may have been to adopt them at the time. Of no small consequence is that recommendations to plan sponsors regarding which investments to include in 401(k) and other employer-sponsored plans—advice that is not subject to the SEC’s Regulation Best Interest and right now is not required to be in the customer’s best interest—would be.

Make no mistake, this is a new and considerably revised proposal. One that appears to not only have acknowledged the things that led a federal district court to vacate the 2016 rule—but to actively address and remedy those missteps. 

That said, rumors abound, and some law firms (certainly those that represent the interests of those who would be newly subject to new regulations) have, to my read anyway, been inclined to see plenty of clouds in the silver linings—and to characterize the new proposal as basically being a resurrection of the old one (to that end, the Halloween unveiling made for plenty of “zombie” references)—in the process imagining things that aren’t actually “there.” 

Perhaps the most pernicious is one that they admit isn’t there—but argue it might be; the so-called “private right of action”—which means simply that individuals would be able to sue on their own for a breach of the law. The concerns harken back to comments made during the controversy concerning the 2016 rule that the fiduciary rule was not only opening a new door for litigation, but that the Labor Department was perhaps even counting on it.     

Now, on this, and other points in the new proposal, the DOL acknowledges both the issues raised in the vacating of the rule by the Fifth Circuit, and the deliberate steps they’ve taken to avoid those issues in the new proposal. “The 2016 Rulemaking was significantly different than the current rulemaking,” the DOL explains in the preamble to the proposed rule, “in that it imposed a fiduciary obligation on virtually all investment recommendations specifically directed to retirement investors, imposed demanding contract and warranty requirements in the IRA market, which gave investors a direct cause of action against firms and advisers for breach of the Impartial Conduct Standards, and represented a significant break from the then-existing regulatory baseline.”

To be sure, there is already a cause of action for fiduciary breaches under ERISA for recommendations to plans and participants—and there’s no question that while under a recent decision in a Florida district court, rollover recommendations are not considered fiduciary recommendations under current law—but will be under the proposed rule.

That said, in considering this latest proposal, one notable DC law firm says, for example that the proposal includes “strong enforcement mechanisms, including provisions that give the DOL oversight and authority over firms’ individual retirement account (IRA) business and (although DOL claims otherwise[i]) a potential private right of action.” That’s right—even though the Labor Department specifically says otherwise, this law firm has chosen to read between the lines and see the potential for something the DOL explicitly denies. 

In fact, the Labor Department clearly states in a footnote in the preamble of the proposed rule that (the underline is mine, for emphasis) “Unlike the PTEs that were a part of the 2016 Rulemaking, these PTEs do not, and the amendments would not, include required contracts or warranties that the Fifth Circuit objected to.”  

The footnote goes on to explain that “these prohibited transaction exemptions also do not exempt a party from status as a fiduciary, and therefore, the proposals do not affect the scope of the regulatory definition of an investment advice fiduciary. Rather, the exemption proposals involve an exercise of the statutory authority afforded to the Department by Congress to grant administrative relief from the strict prohibited transaction provisions in Title I and Title II of ERISA for beneficial transactions involving plans and IRAs.”

Now, the standard of care for “conflicted” recommendations to plans, participants and IRAs is the Best Interest Standard—a combination of the prudent man rule and duty of loyalty. If the “conflicted” recommendation isn’t in the best interest of a retirement investor, the protection of the prohibited transaction exemption (PTE) is lost and the advisor isn’t permitted to be legally compensated. That said, the best interest standard in the PTE isn’t actionable.

Another critical “boogeyman” that proposal critics claim to have seen there is an undermining of the ability to enforce arbitration clauses as a precursor to litigation. I say “conjured” because—unlike a controversial provision in the 2016 rule that barred the use of the Best Interest Contract Exemption (BIC) if advisory contracts included an arbitration requirement—there is no mention or reference to that in the current proposal.        

There’s plenty still to analyze and evaluate in this new proposal—and arguably not as much time to do so as we might prefer. Here’s hoping most of that time and energy is spent on the things that are actually in the proposal instead of imaginary “monsters” that aren’t. 

 - Nevin E. Adams, JD

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[i] Their exact words.

A 'Retirement' Thanksgiving

Thanksgiving has been called a “uniquely American” holiday—and so, even in a year in which there has been what seems to be an unprecedented amount of disruption, frustration, stress, discomfort and loss—there remains so much for which to be thankful. And as we approach the holiday season, it seems appropriate to take a moment to reflect upon, and acknowledge—to give thanks, if you will.

While it’s the celebration following a successful harvest held by the group we now call “Pilgrims” and members of the Wampanoag tribe in 1621 that provides most of the imagery around the holiday, Thanksgiving didn’t become a national observance until much later.

Incredibly, it wasn’t marked as a national observance until 1863—right in the middle of the Civil War, and at a time when, arguably, there was little for which to be thankful. Indeed, President Abraham Lincoln, in his proclamation regarding the observance, called on all Americans to ask God to “commend to his tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife” and to “heal the wounds of the nation.”

We could surely stand to have some of that today.  

My List

With all of the strife and turmoil in our world, there remains much for which we can all be thankful. And in this, my first year of “retirement”—well, the list seems even longer this year. 

I’m once again thankful that so many employers (still) voluntarily choose to offer a workplace retirement plan—and, particularly in these extraordinary times, that so many have remained committed to that promise. I’m hopeful that the encouragements of prospective legislation, if not the requirements of same, will continue to spur more to provide that opportunity.

I’m thankful that there are provisions in SECURE 2.0 that will further, and perhaps dramatically, encourage plan adoption.

I’m thankful that so many workers, given an opportunity to participate in these programs, (still) do. And that, under new provisions in SECURE 2.0, those who gain new access to those programs will be automatically enrolled, if not immediately, then in 2025.

I’m thankful that the vast majority of workers defaulted into retirement savings programs tend to remain there—and that there are mechanisms (automatic enrollment, contribution acceleration and qualified default investment alternatives) in place to help them save and invest better than they might otherwise.

I’m thankful for new and expanded contribution limits for these programs—and hopeful that that will encourage more workers to take full advantage of those opportunities, even if the increases aren’t as big as last year’s (on the other hand, inflation isn’t as high, either).

I’m thankful for the Roth savings option that, for all the negative press and focus on the accounts of a few wealthy individuals, provides workers with a choice on how and when they’ll pay taxes on their retirement savings. There’s a LOT to be said in favor of tax diversification, particularly the way benefits like Social Security and Medicare are means-tested.

I continue to be thankful that participants, by and large, continue to hang in there with their commitment to retirement savings, despite lingering economic uncertainty, rising inflation, and competing financial priorities, such as rising health care costs and college debt—and that their employers continue to see—and support—the merit of such programs.

I’m thankful for the strong savings and investment behaviors (still) evident among younger workers—and for the innovations in plan design and employer support that foster them. I’m thankful that, as powerful as those mechanisms are in encouraging positive savings behavior, we continue to look for ways to improve and enhance their influence(s).

I’m thankful that our industry continues to explore and develop fresh alternatives to the challenge of decumulation—helping those who have been successful at accumulating retirement savings find prudent ways to effectively draw them down and provide a financially sustainable retirement. Trust me, knowing how much your retirement income will be is an essential element in knowing when you can retire.

I’m thankful for qualified default investment alternatives that make it easy for participants to benefit from well diversified and regularly rebalanced investment portfolios—and for the thoughtful and ongoing review of those options by prudent plan fiduciaries. I’m hopeful (if somewhat skeptical) that the nuances of those glidepaths have been adequately explained to those who invest in them, and that those nearing retirement will be better served by those devices than many were a couple of decades ago.

I’m thankful that the state-run IRAs for private sector workers are enjoying some success in closing the coverage gap, providing workers who ostensibly lacked access to a workplace retirement plan have that option. I’m even more thankful that the existence of those programs appears to be engendering a greater interest on the part of small business owners to provide access to a “real” retirement plan.

I’m thankful that figuring out ways to expand access to workplace retirement plans remains, even now, a bipartisan focus—even if the ways to address it aren’t always.

I’m thankful that the ongoing “plot” to kill the 401(k)… (still) hasn’t. Yet. Let’s face it, it has a new name, and some new supporters—but…

I’m thankful for the opportunity to acknowledge so many outstanding professionals in our industry through our Top Women Advisors, Top Young Retirement Plan Advisors (“Aces”), Top DC Wholesaler (Advisor Allies), and Top DC Advisor Team lists. I am thankful for the blue-ribbon panels of judges that volunteer their time, perspective and expertise to those evaluations.

I’m thankful that those who regulate our industry continue to seek the input of those in the industry—and that so many, particularly those among our membership, take the time and energy to provide that input.

I’m thankful to (still) be part of a team that champions retirement savings—and to be a part of helping improve and enhance that system.

I’m thankful for those who have supported—and I trust benefited from—our various conferences, education programs and communications throughout the year—particularly at a time like this, when it remains difficult—and complicated—to undertake, and participate in, those activities.

I’m thankful for the involvement, engagement, and commitment of our various member committees that magnify and enhance the quality and impact of our events, education, and advocacy efforts.

I’m also thankful for the development of professional education and credentials that allow the professionals in our industry to expand and advance their knowledge, as well as the services they provide in support of Americans’ retirement.

I’m thankful for the consistent—and enthusiastic—support of our event sponsors and advertisers.

I’m thankful for the warmth, engagement and encouragement with which readers and members, both old and new, continue to embrace the work we do here.

I’m thankful for the team here at NAPA, ASPPA, NTSA, ASEA, PSCA (and the American Retirement Association, generally), and for the strength, commitment and diversity of the membership. I’m thankful—even in “retirement”—to continue to be able to make a “difference.” I’m especially thankful to have a friend and true professional like John Sullivan ready, willing and able to step in as Chief Content Officer. There are few experiences more miserable than having a job you love taken over by someone who doesn’t. I’m thankful, so thankful that hasn’t been the case here. 

I am, of course, thankful for being able to “retire”—to kick back a bit. While I continue to get good-natured ribbing about how I don’t know how to “retire,” this first year of not working full-time has been a blessing in so many ways. I’m especially grateful to my wife for her encouragement and support throughout nearly four decades (amidst a LOT of sacrifices) and look forward to this next chapter in our lives.   

But most of all, I’m once again thankful for the unconditional love and patience of my family, the camaraderie of an expanding circle of dear friends and colleagues, the opportunity to write and share these thoughts—and for the ongoing support and appreciation of readers… like you.

Wishing you and yours a very happy Thanksgiving!

Shifting the 401(k) ‘Balance’?

A week or so ago, I came across an announcement that IBM was making changes to its 401(k). More specifically that, effective next year they were going to replace their matching contribution in their 401(k) with an employer contribution to a cash balance plan.[i] In the days that followed, the news was picked up in a couple of different trade publications—the implication being that this might be signs of a new shift in plan design. Heck, even Teresa Ghilarducci weighed in, championing the “evolution” to a defined benefit structure from the “flawed” 401(k). She never misses an “opportunity.”

Readers here are likely familiar with the basic concepts of a cash balance design. Technically a defined benefit plan, it’s generally referred to as a “hybrid” because it also has a number of participant-friendly aspects that it shares with a defined contribution plan, notably an account balance (though it’s a “notional” one) that is shared with participants. The benefits accumulate somewhat evenly over time, rather than being more service “back-loaded” as traditional pension plans tend to be. But just like a traditional DB plan, cash balance plans are funded by the employer on an actuarial basis, and the investments are employer-directed, ostensibly with an eye toward the benefit obligations that are accruing. Also, some cash balance plans are insured by the Pension Benefit Guaranty Corporation (PBGC), just like traditional pensions (and yes, the employer has to pay premiums).

Of course, cash balance designs aren’t new, nor are they new at IBM, which (in)famously shifted to one from a traditional defined benefit plan back in the late 1990s. I say “infamously” because it triggered a couple of participant lawsuits from individuals who thought their benefits had been reduced in the move—an age discrimination suit they won, only to lose on appeal. That said, even in finding for IBM the appellate court acknowledged that older workers were generally correct in perceiving "that they are worse off under a cash-balance approach" because such a plan eliminated the possibility of earning larger benefits as they neared retirement. "But removing a feature that gave extra benefits to the old differs from discriminating against them," the judge wrote. 

That controversy notwithstanding, cash balance plans have, in recent years, proven to be quite popular—particularly among smaller employers because they provide more funding flexibility than a traditional DB plan, and the potential for better benefit accumulation than the non-discrimination and top-heavy test limits often allow with defined contribution plans, such as a 401(k). But what IBM has done—basically replacing its 401(k) match with a cash balance plan contribution does appear to be unique—and worth noting.

As for IBM, while external perspectives on the announcement appear to be largely positive,[ii] it remains to be seen how it will be accepted by those it is ostensibly designed to benefit. Some have already commented that the loss of a match will reduce incentives to save in the 401(k)—others that the resulting diminishment in the 401(k) balance will undermine the amounts available for loans and hardships, though that arguably isn’t the purpose for those 401(k) savings, either. On the other hand, all eligible IBM employees stand to get this employer contribution, not just those who contribute to the 401(k) (though with what is said to be a 97% participation rate, it seems that few are left out at present, though we don’t know their contribution rates). You don’t have to be a cynic (though it helps) to imagine that IBM has done the math here, and that the change is either neutral, or inures favorably to their bottom line.

People tend to forget that the contributions defined in a defined contribution plan can be (re)defined each plan year—and while reductions are rare, they are not unprecedented. That said, even in rolling this new benefit out, IBM has (according to an internal communication memo posted online) acknowledged a reduction; “IBMers will also receive a one-time salary increase to offset the difference between the IBM contributions they are currently eligible to receive in the 401(k) Plan and the new 5% RBA pay credit”—though arguably that’s trading a pre-tax benefit for one on which taxes will be due immediately.   

While it’s certainly an interesting move—by a company with a history of interesting benefit moves—and, despite the enthusiastic response of Professor Ghilarducci, it seems unlikely to catch on more broadly.  Retirement savers have not only long understood and appreciated not only the value of an employer match, and so seem unlikely to embrace “losing” that to new plan they don’t understand, however even the tradeoffs are presented. As for plan sponsors—well, inertia is a powerful force in plan design as well—and a big design change that requires sensitive (and likely) ongoing communication will almost surely give pause to even the most innovative.

That said, it should serve as a reminder that plan designs can, and should, serve multiple purposes. It will be interesting to see how this one pans out.

- Nevin E. Adams, JD  

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[i] It’s actually referred to as a Retirement Benefit Account (RBA), though the description fits a cash balance plan, and it’s described as being offered “within IBM’s Personal Pension Plan.”

[ii] Not exclusively, of course—there’s cynicism to be found with regard to IBM’s true motives here. 

Checking Your 401(k) Smoke Detectors

Daylight saving time doesn’t really live up to its name—but as you’re resetting clocks, anxiously awaiting the realignment of circadian rhythms and changing smoke detector batteries, it might be a good time to (re)consider the following.

Do you have fiduciary liability insurance?

I’m NOT talking about the Fidelity Bond required of every ERISA plan (this protects the plan and its participants from potential malfeasance on the part of those who handle plan assets. In fact, the plan is the named insured in the fidelity bond). I’m also NOT talking about the corporate governance policies that many organizations have in place for actions undertaken by organization officials. These may not cover you, and they very likely won’t cover actions taken as an ERISA plan fiduciary even if you are covered. 

What you need to check for is something called Fiduciary Liability Insurance. This policy typically protects the plan’s fiduciaries from claims of a breach of fiduciary responsibilities—an important protection since ERISA plan fiduciaries have personal liability, not only for their actions, but for the actions of their co-fiduciaries. Just remember; the cost of the insurance can be paid by the employer or by the plan fiduciary—but not from plan assets.   

Do you have an investment policy?

Note that I said investment POLICY, not an investment policy STATEMENT. While plan advisers and consultants routinely counsel on the need for, and importance of, an investment policy statement (IPS), the reality is that the law does not require one, and thus, many plan sponsors—sometimes at the direction of legal counsel—choose not to put one in place.

Of course, while the law does not, in fact, specifically require a written IPS—think of it as investment guidelines for the plan—ERISA nonetheless basically anticipates that plan fiduciaries will conduct themselves as though they had one in place. And, generally speaking, plan sponsors (and the advisors they work with) will find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards—if those standards are already in writing, not crafted at a point in time when you are desperately trying to make sense of the markets.

Are your plan’s target-date funds (still) on target?

Flows to target-date funds (TDF) have continued to be strong—and little wonder, what with their positioning as the qualified default investment alternative (QDIA) of choice for most 401(k)s. That said, the vast majority of those assets are still under the purview of an incredibly small number of firms—with glidepaths that are not as dissimilar as their marketing materials might suggest.

A TDF is, of course, a plan investment, and like any plan investment, if it fails to pass muster, a plan fiduciary would certainly want to remedy that situation, including removing the fund if necessary (don’t take my word for it—that’s coming straight from the Labor Department). 

That said, TDFs are frequently, if not always, pitched (and likely bought) as a package. While each fund in the family is reviewed separately, and certainly should be, breaking up the set certainly carries with it a series of complicated consequences, not the least of which are participant communication issues and glide path compatibility. Not that those can’t be overcome—and not that those complications would be deemed sufficient to retain an inappropriate investment on the plan menu—but it doesn’t take much imagination to think about the heartburn that might cause.

The reasons cited behind TDF selection run a predictable gamut; price/fees, performance (past, of course, despite those disclaimers), platform (as in, it happens either to be their recordkeepers, or compatible with their program)—and doubtless some are actually doing so based on an objective evaluation of the TDF’s suitability for their plan and employee demographics.

Whatever your rationale, it’s likely that things have changed—with the TDF’s designs, the markets, your plan, your workforce, or all of the above. It’s worth checking out.

Is your plan committee capable?

Today the process of putting together an investment or plan committee runs the gamut—everything from simply extrapolating roles from an organization chart to a random assortment of individuals to a thoughtful consideration of individuals and their qualifications to act as a plan fiduciary.

There is, or should be, a legitimate, articulatable reason why each and every member of your plan/investment committee was selected. They, and every other member of the committee, should know that reason. If you can’t articulate that reason (or can’t with a straight face), they shouldn’t be on the committee—for their own sake, and the sake of every other committee member.

Note also that, over time, committees have a tendency to expand, sometimes based more on factors like internal organizational politics than on valuable perspectives or expertise. But human dynamics are such that the larger the group, the more diffused (and sometimes deferred) the decision-making. So, it’s worth revisiting that articulatable reason—and making sure it’s still valid—on at least an annual basis.

Do you need help?

ERISA only requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about such matters. ERISA does not require that you make those decisions by yourself—and, in fact, requires that, if you lack the requisite expertise, you enlist the support of those who do have it. 

That’s where qualified retirement plan advisors and/or experienced third-party administrators (TPAs) can make a big difference—both in making sure you have good policies and procedures in place—and that they are kept up to date! 

Think of it as a smoke detector for your retirement plan. It might not save you any daylight—then again…

- Nevin E. Adams, JD

Grading on a ‘Curve’

A recent analysis of world pension systems gave America a passing grade, but not a good one.

The latest—the Mercer CFA Institute Global Pension Index[i]—gave the United States a C+ (though a B in adequacy!) ranking our retirement “system” well down (22^nd) in the list of 47 retirement income systems around the world. 

This particular index is comprised of three sub-indices: adequacy, sustainability and integrity, which the authors say are used to measure each of the retirement systems against some 50 “indicators.”[ii] Of course, people are entitled to establish whatever criteria they think is reasonable in such matters, but those who would accept their grading at face value would be well-advised to consider both the assumptions and weighting applied to derive those outcomes. To the sponsors’ credit, the 144-page document provides lots of opportunity to do just that.

Perhaps the biggest challenge of a system like ours matched up against some of these other systems is the sheer diversity not only of our population, but the system itself. The coverage gap[iii] we’re focused on closing presents a considerable disadvantage compared to systems that employ nationwide mandates.  And, let’s face it, the funding issues of Social Security loom ever larger, and undermine the “sustainability” measure of this index, if not the “integrity.” 

If one were to take the recommendations of these authors to heart, in order to boost our grade, we’d need to make people contribute more, make them wait longer to get their benefits, pay them (particularly lower-income workers) more benefits, increase vesting so that they earn more benefits faster, and limit their ability to tap into those retirement benefits before retirement—both by leakage, but also in requiring that some part of those benefits be taken as an income stream.

Said another way, provide more government benefits and make people put in more (and don’t let them take it out) so that they will have more later. This, by the way, has been a consistent recommendation (though perhaps worded more eloquently) of this index.

One thing that is NEVER mentioned, or even acknowledged in this report is the cost of these measures, the taxes imposed to produce them. Or the willingness of the population to undertake them to the exclusion of other considerations. They aren’t, ironically enough, “means” tested.

That’s not their responsibility, of course. Arguably presenting these retirement system alternatives around the world provides policymakers and the populace alike with a broader perspective—ideas and approaches to consider, albeit those concocted in a pristine laboratory environment where costs and personal choice are of no matter—only the largesse of benefits. 

But for those of us living in the real world, and those still working on implementing the tools in the SECURE Acts—I’d give this assessment a grade of “incomplete.”

- Nevin E. Adams, JD

 

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[i] In case you’re wondering, Netherlands, Iceland, Denmark & Israel topped the list (again), all receiving an “A” grade, at least based on the criteria and weighting adopted by the index. The index has been published for a number of years now, and while Mercer’s role has been consistent, different parties (now the CFA Institute) have partnered in its production over the years.

[ii] The report explains that each system’s overall index value is calculated by taking 40% of the adequacy sub-index, 35% of the sustainability sub-index and 25% of the integrity sub-index—weightings that they say “have remained constant since the first edition of the Index in 2009.”

[iii] Indeed, it would be naïve to gloss over the gaps in retirement security that a largely voluntary system exposes. Not that anything (beyond inertia and human nature) prevents every American worker from opening their own retirement account. But we know, and the data supports, that even modest income ($30,000-$50,000/year) workers are 12-15 times more likely to do so when they have the opportunity to do so via a workplace plan. In fact, there’s plenty of impetus in the provisions of the SECURE and SECURE 2.0 Acts to encourage the formation of those plans.

A Day for TPAs

It might not have made it to your calendar, but last week (October 17) was National TPA Day. 

The timing is no accident—yesterday would have been for many calendar-year ERISA plans the (extended) deadline for filing the annual ERISA 5500 form.[i] Like April 15 for CPAs, that date—and timing—are of enormous consequence. And with that annual deadline in the rearview, third-party administrators everywhere can, perhaps, heave a huge sigh of relief. Maybe even throw a little “party.”

The relationship between advisors and TPAs is complex, and one in which there seems to be little middle ground. For every advisor that tells you how many times their TPA partner has gotten them out of a real mess—and for every TPA that applauds the leadership demonstrated by their advisor teammate—well, there seems to be one that either dismisses the TPA’s propensity for a mistimed focus on minutiae that is the essence of being a dutiful TPA, or one that frets that an advisor’s focus on the “big picture” obscures significant operational and administrative issues.

There is, in fact, a certain yin and yang to the perspectives of the two roles—and just like the concept that originated in Chinese philosophy (describing opposite but interconnected, mutually perpetuating forces)—successful (and legal) plan design and operation require a balance. Where plans often fail is when one or the other dominates. 

Just as advisors are often (and inaccurately) seen as the sole fiduciary in a plan once they’re hired, TPAs are generally assumed to be attending to all of the particular details of accurately running the plan; we’re talking about things like ensuring that the terms of the plan document are adhered to, that non-discrimination tests are properly applied, and that contributions are timely deposited. The lines are often blurred between TPA and recordkeeper—the latter technically being a TPA, though these days the level of services can differ dramatically. 

Over time the role of TPA has been diminished in the eyes of many. Sure, they deal with a lot of technical “minutiae”—we’re talking deep in the “weeds” here. The classic reference is you ask what time it is, and they (some, anyway) first want to explain to you how a watch is made. That said, the role of plan administrator—perhaps a better label would be compliance administrator—is essential—critical—to the smooth, effective and efficient running of a plan—and on aspects that,[ii] odds are, your recordkeeper (another critical role, but one often focused on other things) isn’t always. They can even help you find—and keep—clients!

That said, TPAs come in all shapes and sizes—and like advisors—have different service models, areas of specialization and, yes—personalities. If you’ve had a bad experience—you’re not alone. But for my money, if you want to be able to focus on the plan issues that truly require your expertise—rather than your attention—you’ll find that all to be easier with the assistance, support, and guidance of a qualified TPA.[iii]

If you’ve found a good one (or two)—be sure to give them a hug—and maybe a cake. It’s National TPA Day, after all… 

- Nevin E. Adams, JD

Additional TPA Resources: 

Finding the Right TPA Partner

Bundled Versus Unbundled: 5 Myths

Resource ‘Full’?

What’s in a Name?   

 

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[i][i] Credit the folks at John Hancock for—to my eyes, anyway—making TPA Day a “thing.”

[ii] Things like that: 

1. All eligible workers are included in the plan—as required by law—and ineligible workers are not unduly credited with benefits?
2. Compensation used as the basis for contributions and/or eligibility is accurate, in accordance with ERISA and IRS limits, both with regard to amount (how much) and individuals (who)?
3. The plan’s allocation of benefits meets legal requirements and the correct individuals receive the correct amount(s), thus preventing the need for corrective measures and penalties? 
4. The amount(s) allocated to individual participant accounts match the actual dollars deposited into the plan/trust. Additionally, to ensure that contribution deposits are made to the plan/trust in accordance with legal requirements, forestalling legal fines and penalties?
5. The appropriate plan notices are timely delivered to the applicable individuals in accordance with legal requirements, providing them with important plan information and instructions (and preventing the application of penalties for failing to do so)?
6. Employees are properly categorized as to their status as highly compensated employees (HCEs), key employees (for top-heavy testing) and spousal/familial relationships so that the allocation of benefits and eligibility is appropriate and consistent with legal requirements?
7. The tax filings related to the plan (Form 5500, 8955, 5330, etc.) are filed accurately and on time in order to comply with the legal requirements regarding the plan, and thus avoid fines and penalties?
8. The amounts distributed as loans or distributions are consistent with the vesting schedule of the plan, in accordance with plan parameters and legal limits—and that the needed authorizations are obtained?

[iii] And here’s a resource that can help you validate/align expectations of service; HERE.

Mark Your Calendars!

Social media routinely reminds me that I’m teetering on the brink of overlooking key remembrances—days in the year to honor sons, daughters, puppies, dogs, kittens, and…well, you name it. And we have whole months set aside to acknowledge the contributions of women, black history, and Hispanic heritage—but there’s another you might have missed…

As it turns out, October is National Retirement Security Month—a “national effort to raise public awareness about the importance of saving for retirement.” More specifically, to provide an opportunity for employees to reflect on their personal retirement goals and determine if they're on target to reach those goals—and for those who work with those employees to help them do so.

Now, while the need isn’t new, the calendar acknowledgement is, at least relatively so. The notion was raised in 2006 by then-Sens. Gordon Smith (R-OR) and Kent Conrad (D-ND)—though at that time it was “just” a week. However, in 2020, the National Association of Government Defined Contribution Administrators took it even further and updated its legislative priority to advocate to change it to National Retirement Security Month, instead of only the week.   

That said—and despite the hard work, talented designs, and sponsorship of a number of large and reputable financial services organizations, I suspect many of you haven’t even heard of it. More’s the pity.

Key Objectives

Traditionally, the week is focused on three key objectives:

• making employees more aware of how critical it is to save now for their financial future;
• promoting the benefits of getting started saving for retirement today; and
• encouraging employees to take full advantage of their employer-sponsored plans by increasing their contributions.

Now, if you’re reading this (and you are, aren’t you?), odds are that you’re all too aware of the challenges that confront our nation’s retirement savings system. I’d go so far as to wager that just about everybody taking the time to read this post thinks about those items every working day, and doubtless spends a good part of their week trying to advance those causes—so, what’s the point of a month devoted to that emphasis?

What If?

The point, of course, is not for us—but for those who don’t have these issues on their mind every day. Because, even if we should be thinking about this every day of the year, special “events” like National Retirement Security Month give those of us who do a chance to, as a collective group of professionals, remind those who don’t of the importance of thoughtful preparations for retirement.

Better still, with the plan design improvements available today, you might only need one week—or one hour—of getting an individual—or group of individuals—to think about those messages.

Consider, for example, what if that period of focus got an individual (or, better still, a group of individuals) to enroll in their workplace retirement plan? What if it led an employer to embrace automatic enrollment, or, for those who are already enrolled, to increase the default contribution rate, or to reenroll those who have opted out of participation in the past? What if that focus prompted those who are already participating to increase their deferral rate (on their own), or to boost that rate so that they got the full benefit of the employer match? And what if that period of focus—or the actions above—led workers to stop and actually figure out how much they might need to save to sustain their retirement?

What if, indeed? 

- Nevin E. Adams, JD

Failure(s) to Communicate

There’s an oft-repeated line from that 1967 classic movie “Cool Hand Luke” about a “failure to communicate.”

Now, most of us aren’t trying to convey the consequences of violating prison rules, but there are messages where mere words sometimes fall short of their purpose. There are literal barriers in terms of language, of course—but all too often also barriers built of different life experiences, of cultural references, and certainly of age. Indeed, we frequently use words, or employ metaphors to enhance, or at least provide some flavor to our explanations/instructions—only to have it fall on ears that may hear the words, but lack—or in some cases, confuse—the necessary context (I’m routinely forced to reference the Urban Dictionary to make sure certain words haven’t taken on an unintended meaning).   

Mind ‘Set’

In that spirit, several years back I stumbled across something called the Beloit College Mindset List (a couple of years back it “moved” and was rebranded as the Marist Mindset List). It was a list developed to help college faculty be aware of dated references—to help assure better communications with the incoming class of college freshman. In fact, the focus of the list (and it dates back to 1998) was to provide some perspective on the shifting generational perspectives—the mindset, if you will—of individuals just entering college.

I remember fondly the “can you believe it?” water cooler chats about some of the items on previous lists—kids entering college that had never actually seen a floppy disk (which, ironically, lives on in that “save” icon in Microsoft applications), who might have wondered what “cc” actually stands for in their email (because they have never actually had to deal with a “carbon copy”), who never had to dial a rotary phone, who might never have seen (much less used) a payphone, who never knew a world without the “world wide web” (much less a world in which you could connect to it—wirelessly)—and perhaps most notably of late, weren’t even alive on 9/11. Yes, we’re talking about a generation who can’t fully appreciate just how weird it seems to see people having video calls on their wristwatches—just like Dick Tracy did in comics of old (talk about your dated references!).  

Class of 2027

But, according to this year’s Marist Mindset List,[1] the Class of 2027:

• Are just as likely to be listening to Led Zeppelin as Lana del Rey or Lil’ Baby on their phones (with access to music services like Pandora launched in 2005, the year many of these future graduates were born).
• Will get their news primarily from social media sites like YouTube, Instagram and TikTok (Dan Rather & Ted Koppel both retired in 2005, “effectively ending the reign of network news programs as the primary way younger Americans get their news”).
• Have always lived in a world visibly affected by climate change (harkening back to Hurricane Katrina and Rita—though they wouldn’t be old enough to remember either).
• Will almost exclusively watch their video content on YouTube (which launched in 2005) and similar sites online.
• Will be the first to fully integrate ChatGPT or “Generative Pre-trained Transformer” into their college learning experience (one can’t help but see “fully integrate” as a disarming euphemism for more insidious applications).
• Often quote the TV show “The Office,” although the program ended its run in 2013. The characters are omnipresent in today's college culture and the show is now a cultural phenomenon thanks to its rebirth via Netflix and short-form streaming services (OK—I don’t get the fixation on The Office, either. But who am I to question generational fixations?)
  

Retirement (Re)Set

That said, for those of us who will be working (or living) with the Class of 2027 (once they graduate, if not sooner), well, for them (and those working with them), it might be good to keep in mind:

• There have always been 401(k)s (even if everyone hasn’t had access to them at work).
• They may never have to actually sign up for their 401(k) (thanks to automatic enrollment).
• They may never have had to think about the investments in their 401(k) (due to QDIA/target-date fund defaults).
• There has always been a Roth option available to them, whether 401(k), 403(b) or IRA (and, considering what future tax rates are likely to be, they should take advantage).
• They’ve always been able to view and transfer their balances online and on a daily basis (and so, of course, they mostly won’t).
• They’ve always worried that Social Security wouldn’t be available to pay benefits. (In that, they’re much like their parents at their age…even today).

But perhaps most importantly, they’ll have the advantage of time, a full career to save and build, to save at higher rates, and to invest more efficiently and effectively—and, with luck, access to a trusted advisor to answer their questions along the way...

  - Nevin E. Adams, JD

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[1] Sadly, this year’s list isn’t quite as much “fun” as previous lists have been (at least not to this Boomer)—and this year it comes with some political “commentary” that seems unnecessary (at least to this Boomer). The Marist crowd appears to take themselves more seriously than the Beloit College founders did (or perhaps it’s just the times we’re in).

ERISA Litigation: How Low Will 'They" Go?

The ERISA litigation field in recent years has seen copycat filings, plagiarism in pleadings, factual flaws, and misleading assertions—but to my eyes, we’ve just hit a new low.

I’m speaking of what appears to be a new strategy, at least in this area of the law. Specifically, a California law firm by the name of Lieff Cabraser Heimann & Bernstein is in the midst of what appears to be a pre-trial “shakedown.”

More specifically—brought to my attention by Daniel Aronowitz (writing for The Fid Guru Blog)—Leiff Cabraser is currently engaged in a letter writing campaign to plan sponsors, alerting them to a series of assertions about ERISA litigation, allegations about the fees paid by participants in their plans (relative to a standard that has been repeatedly criticized in that context at trial)—all alongside the fact that they’ve allegedly found an as-yet-unnamed plaintiff-participant in the plan in question that is said to be willing to represent a class action alleging the plan’s fiduciary breach. 

Oh—and the purpose of this campaign? Why, according to the letter, Lieff Cabraser Heimann & Bernstein is “open to discussing our client’s ERISA claims in hopes of reaching an early resolution…before a great deal of time and expense is incurred by any party in litigating this matter.” 

And if the threat of litigation was not sufficient to garner their attention, the letter closes, “This may be the last time that the parties have total control over the outcome of this matter without leaving it up to the Court. A settlement now, before the parties have incurred significant litigation expenses, will benefit both parties.”

Perhaps, but I’m guessing one party in particular.

Sadly, there’s nothing illegal in this approach—even though it smacks of extortion. As for the recipients of these letters, they may well know that the fees their plans/participants are actually paying are much different than the letter suggests, but they may NOT know of the shortcomings in the way the 401(k) Averages Book data is presented (though already noted by more than one court) and applied to their plans (Mr. Aronowitz does an artful job of explaining that, however, and it’s worth a look!). However, they probably ARE aware of the headlines that appear with distressing regularity tracking this type of litigation and may well have a sense of the multi-million-dollar settlements—whose pace and frequency seem to be quickening with each passing month. 

Looking at the arguments presented in most of these actions, it’s hard to dismiss the feeling that most are, in fact, (just) playing for that quick settlement; half of their filings (and most are pretty short) are simply a cut and paste regarding ERISA’s obligations alongside an inference (and sometimes more than an inference) that the plan fiduciaries in question (and those who appointed them) have fallen short of those obligations. They cite plans that are supposedly comparable (at least in size and participant count), extract numbers from government filings that don’t capture the full picture of costs (or services), lay those down next to data from sources known to have shortcomings for those purposes, toss in some “best practice” commentary from a trade publication or two, and rely on the forbearance of the judiciary to open the door to the more intrusive (and costly) process of discovery, deposition, and at some point, trial. 

That’s been the way of this type of litigation for awhile now, where it is simply easier—and, sadly, cheaper—for plan fiduciaries (and their insurers) to just settle and move on, though that process inevitably serves to fund the plaintiffs’ bar’s next “foray.”

Consequently, it’s been refreshing of late to see some federal district courts require more to establish a “plausible” argument to get past that point—to call for not only an accounting of fees, but of the services rendered for those fees. That surely complicates matters for the plaintiffs’ bar—but then, why should they be able to drag firms through the arduous process of discovery and depositions with no more than regurgitated copy, sweeping generalizations, and a table or two cobbled from unrelated sources? 

But now it seems that this law firm at least doesn’t even want to go through that exercise—and why should they if they can simply unleash a correspondence campaign that stands to bring in a payoff from who knows how many plans without even the bother of a court filing or appearance?

I know it’s easy to sit here and carry on as to why plan fiduciaries need to stand up to this kind of practice—to applaud the actions of federal judges who can see what’s going on here, and hope they continue to demand more than mere allegations and flawed assumptions. Unfortunately, this most recent undertaking is perhaps an obvious progression of a sad, regrettable trend.

But I can promise you that if this “works”—it won’t be the last.

- Nevin E. Adams, JD

The Biggest Surprise About (My) Retirement

My “retirement” isn’t even a year old—and for the most part, it’s played out pretty much as planned.  There was, however, an area that caught us a bit flat-footed.

For us (and this has very much been a joint effort between me and my wife), that surprise was…Medicare. 

Don’t get me wrong; to date the coverage has compared favorably with what we had pre-retirement—mostly because we coupled “standard” Medicare with a Medicare Advantage plan (which has actually provided some nice enhancements over our pre-retirement coverage). 

That said, here are some things we’ve learned along the way that we either didn’t know or hadn’t thought about “before”:

Medicare isn’t free. 

Well, technically speaking, some of Medicare comes without additional premiums/cost, at least if you’ve worked at least 10 years and paid into that system. 

There are two “core” parts to Medicare; what are affectionately referred to as Part A (hospital coverage)—which is “free” (in that your historical payroll deductions fund it) and Part B (medical insurance, which covers outpatient care, services from doctors and health care providers, some preventative services)—which, like your current health insurance, has premiums that you have to pay.  More on that in a minute.

While certainly of benefit, those coverages won’t replace everything covered by the health insurance you’ll have carried pre-retirement (those are likely included in what are called Part C (vision, hearing, dental, and Part D (prescription drug coverage). The bottom line here is that your post-retirement spending plans need to include something for health insurance (more precisely, your Social Security benefit will be reduced by that amount). You can find out more at: https://www.medicare.gov/basics/costs/medicare-costs

You (may) need to apply for Medicare before you “take” Medicare.

Once you start receiving Social Security benefits, you are automatically enrolled in Medicare A. But if you work past age 65 (as I did) and don’t start taking Social Security (like me), then you have to sign up for Medicare—even if you’re still working, have insurance, and don’t plan to use Medicare (this will, of course, confuse your current health care providers, at least momentarily. Everyone assumes when you turn 65, you’re on Medicare). 

There’s a seven-month initial enrollment period that begins three months before the month you turn 65 and ends three months after your birthday month. Now, there are some exceptions to that timing, but—the bottom line is, you’ll likely find it to be less complicated to sign up around your 65^th birthday, and then you don’t have to worry that you’ll run afoul of deadlines that can cost you a lot later on.

There are no Medicare “family” plans.

You may be accustomed to choosing workplace health insurance based on the needs of your family, or at least you and your spouse. For years I have “delegated” that responsibility to my wife, who has always had a better sense for the family doctors and our coverage needs. But we each had to sign up for Medicare separately (though we did “coordinate”).

That said, there can be complications if you are retiring at a different time than your spouse, particularly if you’ve shared coverage under a family plan. We had planned to let my wife (who is the same age, though she maintains that the five-month differential in our dates of birth makes her younger) go on Medicare while I continued with my workplace plan. Now, there is a process that allows for this, but it’s a bit of an exception and—well, we got close to the deadline, and rather than have coverage at risk, we just waited until we could both switch at the same time.

Your Medicare premiums are based…on your income.

One of the biggest surprises (to me, anyway) was to find my Medicare health insurance premiums were based on income. And if you’ve filed jointly, BOTH of your premiums are based on your adjusted gross income (AGI). But that wasn’t the biggest surprise… 

Your Medicare premiums are based on your income…from two years ago.

When it comes to figuring out your income for establishing your Medicare premiums, you might expect that a government agency would turn to an official government record of your income—and that turns out to be your AGI, as noted above. The jaw-dropper (this was the biggest surprise) was that it was our AGI from TWO YEARS AGO. 

Now, mind you, we’ve planned our retirement income needs just fine—but my AGI this year is going to be significantly less than it was when I was employed full time. And that makes a BIG difference in those monthly Medicare premiums. 

Fortunately, there is an appeals process—and even more fortunately, with my wife’s persistence we were able to rectify that situation BEFORE the first premium came due. It’s something you’ll want to get a jump on, as gathering the data/proof, getting it to Social Security—not to mention getting it to the attention of someone at Social Security—can be time consuming. For more information on that process, see https://www.ssa.gov/medicare/lower-irmaa or on the issue here.

The bottom line is that you want to start thinking about Medicare BEFORE you start filing for it. 

- Nevin E. Adams, JD

Does TikTok Really Hate the 401(k)?

A recent MarketWatch article poses the intriguing question: “Why does TikTok hate the 401(k) so much?”

Now, as social media platforms go, I’ve pretty much avoided TikTok. Oh, I’ve swung by it from time to time just to see what the “fuss” is, but generally speaking (and even in “retirement”), I’ve better ways to spend my day than scrolling through two-minute videos of—well, to my eyes, pretty insipid stuff.

On the other hand, I’ve long “dabbled” in social media platforms, and by dabbled, I mean I have established accounts, moseyed around, and ultimately “engaged” (some of you may (hopefully) even have noticed that I’ve been doing two-minute videos on LinkedIn for the past several months)—it’s just never been my “day job.” I’ve been on Twitter since 2008—LinkedIn even longer. Facebook (yes, I AM a Boomer, after all) since my kids got on it, and Instagram once Mr. Zuckerberg shackled that app to Facebook. I’ve read books on the subject of social media, attended conferences and training sessions (live and online) about how to use/leverage these tools—and still spent a lot of time over the past couple of decades waiting for the day when the actual response to a LinkedIn (or Twitter) post…mattered. I don’t mean the “likes” that Twitter shares, or the “impressions” or number of “followers” these platforms attribute to one’s account. They’re valuable metrics, of course—widely shared (and sometimes trumpeted). 

But as much as I enjoy social media—and relish the relationships that I have found and fostered there, in my experience it's still a bit of an echo chamber—one (still) frequented by people who are already “on” social media. Indeed, it seems for the very most part the people who are “there” are there to promote the use and value of social media to those not yet in that “club.” Not that you won’t find valuable content there—but plan sponsor clients? Participants?

That may be changing, of course. Published reports claim that TikTok has over 1.677 billion users globally out of which 1.1 billion are its monthly active users as of 2023. By any measure, that’s a lot of eyeballs. 

Setting aside the number (or quality) of those eyeballs, DOES TikTok really “hate” 401(k)s? Well, at least according to the article, it’s frequently cast as how the 401(k) menu limits your access to more “exotic” investments, and sometimes how hard it is to tap into those retirement savings. They even pillory the notion that you’ll eventually have to pay taxes on those withdrawals (glossing over the taxes you DIDN’T pay on the contribution and subsequent earnings)—one guy actually disparages (as one of FOUR reasons) 401(k)s as an effective retirement plan because it wasn’t INTENDED to be a retirement plan.  And yes, he has a product to sell/pitch.

That said, the “anti-401(k)” messages to be found on TikTok (and they still seem few and far between) are pretty much the same ones you find on any number of personal finance “guest contributors”—the type frequently crafted by individuals who would very much like to help you find your way to their “better” solution. Even on TikTok there ARE, of course, helpful messages as well—and a number of recordkeepers have already staked out some real estate on that platform.[i] But sadly, there appear to be no barriers or knowledge filters here, nothing to indicate that the purveyors of these solutions have, or should be accorded, any credibility on the topic(s) on which they hold forth. Rather, it seems that all you need is a short, snappy message, a rhythmic dance track in the background, and a steady camera (sometimes not even that) to garner attention.       

As noted above, I’ve been ON TikTok, but not established an actual account as I’ve been sensitive to the cautions about data sharing and privacy associated with that platform (though I’m only a tad less concerned about what American HQ-ed platforms do on that front). Overall, some parts of the TikTok “universe” may well be focused on sneering at the value of 401(k)s—and with audience numbers like those above—and a global reach, it’s easy to understand the appeal to any number of shucksters out there.    

But what I’d advise TikTok users to remember is P.T. Barnum’s observation…a man who knew something about shucksters—that there’s a sucker born every minute. 

- Nevin E. Adams, JD

 

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[i] Though their followings seem to be pretty modest, and their messages pretty superficial.

 

A Day to Remember

It’s hard for me to believe that next week we’ll mark the 22^nd anniversary of the 9/11 attacks. 

Harder still to comprehend that there are individuals now in the workplace who weren’t even alive on that day, and others so young that they have no memory of it. Other significant dates on the calendar have names affixed to them, two decades later—and likely forever—this one remains simply “nine-eleven.” 

While the events of that day remain seared in my memory, human beings are, for the most part it seems, wired to forget, to “move on,” from our worst memories. Not that that’s necessarily a bad thing, though this is one day I never will.   

In fairness, that wasn’t a “normal” day for me. I was flying—cross-country—on an American Airlines flight to speak at a conference in California. I learned about the attacks while I was running from one terminal to another in Dallas, Texas. Oh, I had out of the corner of my eye wondered why everyone was gathered around those airport TV monitors so early on a Tuesday morning—but it wasn’t until my wife called on my cell (while I was running) to make sure I wasn’t on one of those planes…that I learned the awful truth.

I wasn’t on those planes of course, though I might well have been.[i] There were, after all, a couple of hundred individuals that boarded early flights just like mine that had no comprehension as to how that day would end, not to mention those already at work in the World Trade Center and Pentagon. And of course, there were the 343 members of the New York City Fire Department and 71 law enforcement officers whose work took them to the World Trade Center that fateful day. A day they went to work—but never came home. 

On not a few mornings since that awful day—and pretty much every time I’ve boarded an airplane since—I’ve thought about how on that horrible day so many went off to a normal day of work, how many boarded a plane—as will many on this anniversary—not realizing that they would not get to come home again. How many sacrificed their lives that day so that others COULD go home. How many put their lives on the line every day still, here and abroad, to help keep us and our loved ones safe. Let’s face it—planning for a long retirement is a laudable goal—but sometimes those plans are… “interrupted.”  And more often than not by things as “normal” as a traffic accident, a drunk driver or an unanticipated heart attack.       

We take a lot for granted in this life, perhaps nothing more cavalierly than that there will be a tomorrow to set the record straight, to right wrongs inflicted, to tell our loved ones just how precious they are.

As we remember that most awful of days—let’s also remember to take a moment to treasure what we have—and those we have to share it with still.

- Nevin E. Adams, JD

 

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[i] I’d spend the next three days living out of a hotel room in Dallas, with flights all cancelled for the foreseeable future, and me unable even to find a car to rent—literally separated from home and family by hundreds of insurmountable miles for three interminably long days. As that long week drew to a close, I finally was able to acquire a rental car and begin a long two-day journey home. During that long, lonely drive, I had lots of time to think, to pray, and yes, to cry. Most of that drive is a blur to me now, just mile after endless mile of open road. I’ve shared before the story of that drive home—where, somewhere in the middle of Arkansas, a large group of bikers was coming up around me—the kind you generally aren’t happy to see coming up behind you on a lonely, deserted highway. But unfurled behind the leader of that group on his Harley was an enormous American flag. And at that moment, for the first time in 72 hours, I felt a sense of peace—the comfort you feel inside when you know you are going…home.

Happy Birthday, ERISA!

Pensions were not on my mind in 1974, certainly not on Labor Day of that year. 

While I was pondering my new college textbooks (and trying to figure out how I was going to pay for $.55/gallon gasoline), President Gerald R. Ford, less than a month in that role—and, appropriately enough on Labor Day, signed into law the Employee Retirement Income Security Act of 1974—better known to most of us as ERISA.

Little did I know at the time that that law—and the structure it provided to the nation’s private pension system—would, in the years to follow, play such an integral role in my life. And yet, in a wide variety of positions, and a handful of different organizations and locations, from that first college internship in 1977 to—well, today—retirement has been my career.

ERISA did not create pensions, of course; they existed in significant numbers prior to 1974. A major motivation for ERISA was the termination of the Studebaker[i] pension plan for its hourly workers in 1963.  At the time, the plan covered roughly 10,500 workers, 3,600 of whom had already retired and who—despite the stories you sometimes hear about Studebaker—received their full benefits when the plan was terminated.

However, some 4,000 workers between the ages of 40 and 59—didn’t. They only got about 15 cents for each dollar of benefit they had been promised, though the average age of this group of workers was 52 years with an average of 23 years of service (another 2,900 employees, who all had less than 10 years of service, received nothing). And so, armed with the real life example of those Studebaker pensions, highlighting what had been a growing concern about the default risk of private sector plans (public sector programs weren’t seen as being vulnerable to the same risk at that time)—well, it may have been a decade before ERISA was to become a reality, but the example of Studebaker’s pensions provided a powerful and on-going “real life” reminder of the need for reform.

In fact, ERISA was designed to regulate what was there and would yet come to be—to protect the funds invested in those plans for the benefit of participants and beneficiaries with a consistent set of federal standards. And, as part of that protection, to establish the Pension Benefit Guaranty Corporation (PBGC).  As President Ford said at the time, “It is essential to bring some order and humanity into this welter of different and sometimes inequitable retirement plans within private industry.”

Has ERISA “worked”? Well, in signing that legislation, President Ford noted that from 1960 to 1970, private pension coverage increased from 21.2 million employees to approximately 30 million workers, while during that same period, assets of these private plans increased from $52 billion to $138 billion, acknowledging that “[i]t will not be long before such assets become the largest source of capital in our economy.” Today, that system has grown to exceed $12 trillion (and another 11.5 trillion in IRAs, much of which came from that private retirement system), covering more than 97 million active workers (142 million in total) in more than 746,000 plans. 

The composition of the plans, like the composition of the workforce those plans cover, has changed significantly over time. While much is made about the perceived shortcomings in coverage of the current system, the projections of multi-trillion dollar shortfalls of retirement income, the pining for the “good old days” when (people act like) everyone had a pension (that never really existed for most), the reality is that ERISA—and its progeny—have unquestionably allowed more Americans to be better financially prepared for a longer retirement. Indeed, the Labor Department recently reported that plans disbursed $266 billion more than they received in contributions[ii] during 2020.

Forty-nine years on, ERISA—and the nation’s retirement challenges—may yet be a work in progress. But it’s hard to imagine American retirement without it, and the individuals who gave it “birth.” 

Happy birthday, ERISA!

- Nevin E. Adams, JD 

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[i] I’d wager that a majority of Americans have never even heard of a Studebaker, and the notion that a major U.S. automobile maker once operated out of South Bend, Indiana would likely come as a surprise to most. The Studebaker brothers (there were five of them) went from being blacksmiths in the 1850s to making parts for wagons, to making wheelbarrows (that were in great demand during the 1849 Gold Rush) to building wagons used by the Union Army during the Civil War, before turning to making cars (first electric, then gasoline) after the turn of the century. Indeed, they had a good, long run making automobiles that were generally well regarded for their quality and reliability (their finances, not so much) until a combination of factors (including, ironically, pension funding) resulted in the cessation of production at the South Bend plant on Dec. 20, 1963.

[ii] Though in total, contributions (DB and DC) increased by 3.2%, to $694.2 billion.